This chapter is from the book

This book is not about corporate social responsibility. It is about enlightened business management.

This book owes much to the ideas of R. Edward Freeman, who in 1984 made a strong case for a stakeholder-based business model in his book Strategic Management: A Stakeholder Approach (Pittman Publishing). As management professor Ronald W. Clement wrote in an article examining stakeholder management theory, “Freeman was the first management writer to so clearly identify the strategic importance of groups and individuals beyond not only the firm’s stockholders, but also its employees, customers, and suppliers. Indeed, he saw such widely disparate groups as local community organizations, environmentalists, consumer advocates, governments, special interest groups, and even competitors and the media as legitimate stakeholders.”1

Firms of Endearment had its origins in discussions among the authors about writing a book on the topic of how marketing has lost its way, consuming ever-more resources but delivering less in terms of customer satisfaction, loyalty, and especially trust. Our initial working title was In Search of Marketing Excellence. However, as we continued exploring the topic and identifying companies that spent less on marketing than their industry peers but achieved far more, we uncovered a more holistic truth: that customers are best served by companies that create superior value and have close relationships with all their stakeholders—employees, suppliers, the communities in which they operate, and, of course, their stockholders. This realization led us to the work of R. Edward Freeman, who among other distinctions, heads the Center for Applied Ethics at University of Virginia’s Darden School of Business.

Since the publication of Freeman’s seminal book on stakeholder-based business models, a flood of articles and books have examined and argued for and against the stakeholder approach to business management. In this book, we present evidence that supports Freeman’s ideas about the interconnected and interdependent nature of stakeholders.

This book is a clarion call for companies—indeed, organizations of every stripe—to reorganize and become vehicles of service to every stakeholder group. We offer a substantial volume of case-based evidence that companies that hew to a stakeholder relationship management (SRM) business model develop a distinctive and lasting competitive advantage and outperform their peers along multiple dimensions, including financial.

We believe that SRM business models will increasingly be seen as the most efficacious way to achieve sustained superior business performance. To understand why, we need to reflect on the profound changes taking place in the cultural bedrock of U.S. society as well as in every other developed nation. The aging of developed societies is a major factor in these changes. With the majority of adults now 45 and older, the worldviews, values, and needs of the young no longer have the influence on society they once did. The worldviews and values associated with midlife and beyond have become more influential on culture than ever. Surveys by consumer trend watchers such as the Yankelovich Monitor bear this out. Myra Stark of the global ad agency Saatchi & Saatchi stated the following in an essay titled “The State of the U.S. Consumer 2002:”

In the face of threats to our safety, our way of life and our economic stability, Americans have pulled back from many of the things that seemed to matter in the ’90s—materialism, career, the celebrity culture, the affluent attitude—and are rethinking how they want to live and work. Daniel Pink, author of Free Agent Nation, calls this new seriousness “the flight to meaning.” “In turbulent times,” he says, “people get serious about finding meaning.”2

The meaning of life—and the meaning of one’s own life in particular—is a perennial issue in midlife and beyond whose influence on society as a whole was less pronounced when the young were the majority. But with the adult majority now consisting of people over the age of 45, the search for meaning has a major influence on the ethos of society at large, including on corporate cultures everywhere.

It is common for people nearing or beyond the career-building and family-raising years to ask, “What am I going to do with the rest of my life?” This self-query arises from a sense that one should be doing more than serving just one’s self; one should begin thinking about serving the larger collective “self.” We discovered many business leaders who have asked themselves a similar question: “How are we going to make this company an instrument of service to society even as we fulfill our obligation to build shareholder wealth?”

As we said in the Prologue, we are in the early stages of a new era that we call the Age of Transcendence. Numerous consumer surveys reveal that people are increasingly looking for higher meaning in their lives than simply adding to the store of things they own. This is a signature trait of people in midlife and older who are not battling basic survival issues, either materially or emotionally. The search for meaning is changing expectations in the marketplace and in the workplace. Indeed, we believe it is changing the very soul of capitalism.

Many have long regarded capitalism as an economic concept without a soul; it is all about business and markets. However, as we see it, the edifice of capitalism is undergoing its farthest-reaching transformation since Adam Smith published The Wealth of Nations in 1776. The nature of the transformation can be summed up in one short statement: Companies are increasingly motivated by and being held accountable for humanistic as well as economic performance.

A humanistic company is run in such a way that its stakeholders—customers, employees, suppliers, business partners, society, and many investors—develop an emotional connection with it, an affectionate regard not unlike the way many people feel about their favorite athletic teams. Humanistic companies—or firms of endearment—seek to maximize their value to society as a whole, not just to their shareholders. They are the ultimate value creators: They create emotional, spiritual, social, cultural, intellectual, ecological, and, of course, financial value. People who interact with such companies feel safe, secure, and fulfilled in their dealings. They enjoy working with or for the company, buying from it, investing in it, and having it as a neighbor.

Numerous companies are successful and admirable in many ways but lack a strong emotive dimension. We argue that for the best prospects of success in the future, companies will need to combine an emotive dimension with operational efficacy. Some have called the emotive dimension the “soul of a company.” Companies without a soul face a doubtful future.

Of course, millions of customers routinely buy from companies to which they feel no emotional attachment. Customers can be loyal in behavior to a company without being loyal in attitude. Attitudinal loyalty comes from emotional attachment. It is attitudinal loyalty that matters most in sustaining the long term survival and success of a business, especially in today’s rapidly evolving marketplace.

The social transformation of capitalism is being driven by cultural changes of tectonic proportions that corporations, governments, and business schools ignore at their peril. This book examines the nature of this transformation, why it is happening now, and what it will take for companies to succeed in this new environment. Companies that do not understand capitalism’s evolving identity—what many are now calling “Conscious Capitalism”—could have a short life expectancy because the forces driving this makeover are essentially unstoppable. They have become part of who we are in these times. Every company has the choice of going with the flow of these forces and being lifted to new heights or being drawn under by the churning rip tides of historic change.

The Power of Love

Most Wall Street analysts and corporate bean counters haven’t caught on to the idea that there is much profit to be gained by bringing love into business operations. However, they and any others whose eyes roll at hearing the words love and management joined together would do well to read James Autry’s Love and Profit. First published in 1991, the book followed Autry’s retirement as chief executive officer of Meredith Corporation Magazine Group. Meredith publishes Better Homes & Garden, Ladies Home Journal, and Country Life, among other titles. Town and Country editor-in-chief Pamela Fiori called Love and Profit “the most enlightening book about management written in the last twenty-five years.”3Love and Profit is a book of poetry about business with inspired prose between poems.

How can a book of poetry be considered the “most enlightening book about management in the last twenty-five years?” Easy. Autry focuses on strategically crucial dimensions of human behavior that relatively few companies acknowledge in their policies and operations. Most business leaders think in terms of numbers and profit. Love and profit is an alien conjunction of words that is quantitatively murky. What’s the payoff? Well, as that sage of sages Albert Einstein said, “Not everything that can be counted counts, and not everything that counts can be counted.” It is attention to the immeasurable qualitative dimensions of life that gives FoE companies their crucial competitive differences from their competitors.

In his book A Whole New Mind, Daniel Pink in effect endorses Einstein’s counsel on the limitations of measuring what counts. He posits that America’s continued economic vitality depends on “...supplement(ing) well-developed high-tech abilities with abilities that are high concept and high touch”4 (echoes of John Naisbitt’s Megatrends from a quarter century ago). Pink elaborates:

High concept involves the ability to create artistic and emotional beauty, to detect patterns and opportunities, to craft a satisfying narrative, and to combine seemingly unrelated ideas into novel invention. High touch involves the ability to empathize, to understand the subtleties of human interaction, to find joy in one’s self and to elicit it in others, and to stretch beyond the quotidian, in pursuit of purpose and meaning.5

Pink’s words capture the essence of the cultural foundations of FoE companies. However, the prevailing view still is that business survival is mostly a numbers game. But according to Pink, we are in a new era in which company survival and growth will depend less on quantitative factors and more on qualitative factors. Perhaps the most powerful qualitative factor present in the culture of FoEs we’ve examined is love—a deep, tender, ineffable feeling of affection6 that runs from company to stakeholder and back again to the company.

James Autry wrote in Love and Profit, “Good management is largely a matter of love.” He elaborates:

Management is, in fact, a sacred trust in which the well-being of other people is put in your care during most of their working hours. It is a trust placed upon you first by those who put you in the job, but more important than that, it is a trust placed upon you after you get the job by those whom you are to manage.7

Tim Sanders, former Chief Solutions Officer of Yahoo!, sings from the same sheet of music in his book, Love Is the Killer App: How to Win Business and Influence Friends:

I don’t think there is anything higher than Love.... Love is so expansive. I had such a difficult time coming up with a definition for Love in my book, but the way I define Love is the selfless promotion of the growth of the other.8

Kevin Roberts, CEO of one of the world’s largest ad agencies, Saatchi & Saatchi, proposes in his book Lovemarks: The Future Beyond Brands that love should be the foundation of all marketing:

At Saatchi & Saatchi our pursuit of Love and what it could mean for business has been focused and intense. Human beings need Love. Without it they die. Love is about responding, about delicate, intuitive sensing. Love is always two-way. When it is not, it cannot live up to the name Love. Love cannot be commanded or demanded. It can only be given.9

Copyrights, trademarks, servicemarks, and now lovemarks, says Roberts. That’s how the strongest brands will institutionalize their uncopyable distinction from competing brands. This is more than a sea change. It is a planetary change. A cosmic change. It is as far removed from marketing theory of the past as instant messaging is from Victorian-era letter writing.